Before you continue reading today’s post, a disclaimer: I am currently invested in the company I am going to talk about today – PayPal Holdings Inc. (NASDAQ:PYPL). But having said that, as always, rest assured I will be impartial in my analysis of the company.

I’m sure the name PayPal is not one that’s alien to you – especially to those of you who have shopped online before, you should have come across it when making payments, as some merchants make use of its digital payment platform to accept payments from their customers (for a small fee.)

From my understanding in its FY2019 annual report (for the financial year ended 31 December 2019), the company currently has 281 million customer active accounts, and 24 million merchant active accounts across more than 200 markets worldwide. The company also owns Braintree (a company based in Chicago in the United States that specialises in mobile and web payment systems for e-commerce companies, which was acquired by PayPal in September 2013), Venmo (a mobile payment service that allows for the transfer of funds between its app users), and Xoom (a platform that facilitates the sending of money, paying of bills, and reloading of mobile phones from the United States and Canada to 131 countries worldwide; the company was acquired by PayPal in November 2015.)

Among the various means that PayPal Holdings Inc. generates its revenue from include:

• charging fees for completing payment transactions, as well as from foreign currency exchange
• instant transfers from their PayPal/Venmo account to their debit card or bank account
• interests and fees from their PayPal Credit product (a credit line that allows for their customers the flexibility to pay for their purchases right away or over a period of time – details can be found here)
• revenue earned through partnerships

Now that you have a better understanding about the NASDAQ-listed digital payments company, let us now proceed to take a look at its financial performance and debt profile over the past 5 years (between FY2015 and FY2019), along with key financial statistics of the company for the first half of the financial year 2020 (ended 30 June 2020) compared against the same period last year (i.e. 1H FY2019.) Notice I have left out the part about dividends – as the company did not declare any over the years.

Let’s begin…

Historical Financial Performance of PayPal Holdings Inc. between FY2015 and FY2020

How has PayPal Holdings Inc. been performing (in terms of its financial performance) over the past 5 years? Let us have a look in this section:

Total Revenue and Net Profit (US$’mil):

	FY2015	FY2016	FY2017	FY2018	FY2019
Total Revenue (USD’mil)	$9,248m	$10,842m	$13,094m	$15,451m	$17,772m
Net Profit (USD’mil)	$1,228m	$1,401m	$1,795m	$2,057m	$2,459m

Personally, I like the company for the fact that it has managed to record improvements to both its top- as well as its bottom-line every single year over the past 5 years – its total revenue went up from US$9,248m in FY2015 to US$17,772m in FY2019, a compound annual growth rate (CAGR) of 14.0%; its net profit improved from US$1,228m in FY2015 to US$2,459m in FY2019, a CAGR of 14.9%.

Net Profit Margin (%):

The following is PayPal Holdings Inc.’s net profit margin I’ve computed:

	FY2015	FY2016	FY2017	FY2018	FY2019
Net Profit Margin (%)	13.3%	12.9%	13.7%	13.3%	13.8%

Over the past 5 years, the digital payments company’s net profit margin have been maintained at around the 13% range.

Return on Equity (%):

Finally, let us have a look at the company’s Return on Equity (RoE) – which is a measure of profitability (in percentage terms) the company is able to generate for every dollar of shareholders’ money it uses (for example, if the company has a RoE of 15.0%, it means the company is able to generate a profit of $15 for every $100 of shareholders’ money it uses):

	FY2015	FY2016	FY2017	FY2018	FY2019
Return on Equity (%)	8.9%	9.5%	11.2%	13.4%	14.5%

It’s good to note that PayPal’s RoE have been steadily rising over the past 5 years (with growth recorded every single year) – from 8.9% in FY2015 to 14.5% in FY2019.

Debt Profile of PayPal Holdings Inc. over the Past 5 Years

Moving on, let us take a look at PayPal’s debt profile over the past 5 years (between FY2015 and FY2019.)

When I invest in a company, my preference is towards those that are in a net cash position, along with one which has a current ratio of above 1.0 (meaning it is able to fulfil its short-term debt obligations.)

Did PayPal Holdings Inc. fulfil these two requirements of mine? Let us find out in the table below:

	FY2015	FY2016	FY2017	FY2018	FY2019
Cash & Cash Equivalents at the End of Period (USD’mil)	$1,393m	$6,119m	$8,285m	$13,233m	$15,743m
Total Borrowings (USD’mil)	–	–	$1,000m	$1,998m	$4,965m
Net Cash/ Debt (USD’mil)	+$1,393m	+$6,119m	+$7,285m	+$11,235m	+$10,778m
Current Ratio	1.5	1.5	1.4	1.3	1.4

The company’s cash and cash equivalents have improved every single year over the past 5 years. No doubt its total borrowings have also gone up as well, but I like the company for the fact that they are in a net cash position over the past 5 years – not only that, its net cash position have also recorded improvements in 4 out of the 5 years I have looked at (the only exception was in FY2019, where it dropped by 4.1% compared to FY2018.)

Also, the company’s current ratio have been maintained at above 1.0 over the last 5 years – meaning it has the ability to fulfil its short-term debt commitments – and this is something I like about the digital payments company.

Key Highlights of PayPal Holdings Inc.’s Performance in 1H FY2020 (vs. 1H FY2019)

On 29 July 2020, PayPal Holdings Inc. released its financial results for the first half of the financial year 2020 (period under review was between 01 January and 30 June 2020), and in this section, let us take a look at some of the key statistics, compared against the same time period last year (i.e. 1H FY2019):

	1H FY2019	1H FY2020	% Variance
Total Revenue (USD’mil)	$8,433m	$9,879m	+17.1%
Net Profit (USD’mil)	$1,490m	$1,614m	+8.3%
Net Profit Margin (%)	17.7%	16.3%	–
Cash & Cash Equivalents at the End of Period (USD’mil)	$11,974m	$18,004m	+50.4%
Total Borrowings (USD’mil)	$2,499m	$8,934m	>100%
Net Cash/ Debt (USD’mil)	+$9,475m	+$9,070m	-4.2%

Again, it is another result set of results reported by PayPal Holdings Inc., with its top-line going up by 17.1% y-o-y and its bottom-line recording an improvement of 8.3% y-o-y. Its cash and cash equivalents also saw a huge increase compared to last year (by 50.4%.)

However, there were two slight negatives – its net profit margin saw a 1.4 percentage point dip to 16.3% in 1H FY2020, and that even though the company continues to be in a net cash position, the amount went down by 4.2% on a y-o-y basis to US$9,070m (due to a huge spike in its total borrowings.)

In Conclusion

Improving top- and bottom-line performances over the years, along with a steadily rising RoE, coupled with the company being in a steadily rising net cash position are reasons for my investment decision in the digital payments company.

However, this post is not a recommendation for you to buy or sell shares of the company. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am a shareholder of PayPal Holdings Inc.

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